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What's Going On In The "GO Zone"  

by Chris Anderson
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Copyright 2006 Chris Anderson

Duck!!! Here comes another hurricane....... This is becoming a common mantra on the Gulf coast the last few years. I personally have cut more fallen trees out of my yard the last couple of years compared to the other 30+ years that I have lived in the state of Florida.

Hurricanes have had a major impact on coastal properties because of the growing concerns of people with regard to living in storm-prone areas. Hurricane Katrina, which hit the Gulf Coast region almost a year ago and is considered to be the most devastating and most expensive natural disaster, brought a lot of damage to real-estate properties in the area expanding to three states: Louisiana, Mississippi, and Alabama. The after-effects of the hurricane were so unnerving that there are no doubt residents who would have considered of moving instead of just rebuilding their homes in the same disaster-prone region. Moreover, the effects of the hurricanes on insurance companies are as devastating because of the huge property losses caused by these natural disasters. Hence, insurance premiums on coastal properties will definitely go up to help insurance companies recover from their current and future losses due to natural disasters.

The hurricanes have also had a big impact on real estate investors. In 2002 to middle of 2005, investing in condos on the beach in preconstruction was exploding. Investors took advantage of the rise of the real estate industry during those times. Offers to sell properties would frequently sell out in hours or days. There was even a condominium tower near the beach front that got all units sold out in just a matter of two days. Prices were very competitive and promos and discounts were also offered. However, the hype reached a sudden halt with the series of hurricanes that hit the gulf area. These natural disasters affected the market value of beach properties.

On the other hand, hurricanes may offer one of the major opportunities in decades. Just before America bid goodbye to the series of unfortunate events in 2005, President George W. Bush signed the Gulf Opportunity Zone Act of 2005, also known as HR 4440. This act is being envisioned by the president to help the communities and residents of the Gulf Coast region which received the most devastating effects of Hurricanes Katrina and Rita. The bill aims to help these people get back to their normal lives after all that had happened. This Act has become known as the Go Zone Act and areas impacted by this bill are now referred to as the Go Zone.

GO Zone Act

After the tremendous Hurricanes Katrina, Rita, and Wilma hit the Gulf Coast region, these natural disasters left the area so devastated that many people could not find housing or shelter to restart their lives. While some people will want to leave, others are just as determined to rebuild bigger and better than ever. The GO Zone Act was approved by the government to help bring life once more to the affected areas. The government offered this bill mainly to encourage investors to build their businesses in the area and create more jobs for the residents in the region. With the different provisions in this approved bill, the government entices residents to stay and rebuild their houses and businesses as well as new investors to buy properties and help in the fast recovery and development of the affected states' economy.

The Gulf Opportunity Zone defined in the bill includes the states of Louisiana, Mississippi, and Alabama which experienced the most devastating effects of the hurricanes. The bill offers tax incentives to investors as well as tax relief for individuals. Some of the major provisions of the bill that can really be promising to the states' economies are as follows:

* Small business expensing was increased from $100,000 to $200,000 for investments placed in service from August 28, 2005 until December 31, 2007.

* 50% bonus depreciation deduction for new equipments placed in service up to December 31, 2007 and new structures placed until December 31, 2008.

* NOL (Net Operating Loss) carryback period is good up to 5 years for losses, extended from previous 2 years.

* For businesses rendered inoperable due to the hurricanes that hit the region, they are eligible for the Employee Retention Tax Credit of 40% for $6,000 paid wages per employee from August 28, 2005 to December 31, 2005.

* Up to $600 per month can be deducted by an employee from his/her gross income for employer provided housing in the GO Zone. A tax credit of 30% can be availed by the employer for the cost of the housing.

* College and graduate students of institutions within the GO Zone area are eligible for Hope Scholarship of up to $3,000, raised from $1,500, while up to $4,000 for the Lifetime Learning Credit. These increases are applicable only for school years 2005 and 2006.

* Rehabilitation Tax Credit is also increased to 13% for eligible rehabilitated buildings and 26% for historical structures.

With the abovementioned provisions of the bill, real estate investors can benefit from the huge tax incentives in buying and building commercial and residential properties in the GO Zone. These tax incentives give real estate investors excellent opportunities to save and earn good income from their investments. Just imagine the 50% depreciation credit an investor can have for building an eligible property until 2008; that's huge savings! Expensing of small business in real estate investments is also increased to $200,000. This provision gives these businesses the opportunity to invest more in real estate without paying too much tax. For operating losses incurred after August 27, 2005, NOL can be carried back up to 5 years.

The incentives provided by the bill truly offer major opportunities to real estate investors. However, there are also some limitations that should be considered in investing in the GO Zone. Qualified GO Zone properties include both residential and non-residential properties placed in service on or before December 31, 2008 and December 31, 2009, respectively. Not all non-residential or commercial properties are eligible for these tax incentives, though. Some of the properties and businesses not eligible for the aforementioned provisions are golf courses, country clubs, gambling property and animal racing property.

The GO Zone can indeed be a gold mine to investors. A lot of good opportunities are opened by the GO Zone Act to enliven again the economy of the GO Zone region. Investors need only to be careful and should still think through each investment to be made as there are also limitations that come with this good break. It is still best to be careful with any investment to be made.

This article is just a prelude to what the GO Zone can offer to a lot of seeking investors out there. Follow up articles will address how one can really take advantage of the opportunities in the GO Zone.

About the Author

Dr. Chris Anderson is the founder of http://www.GetPreconstructionDeals.com and leads a 20,000+ investor group. Get his weekly, thought provoking articles by signing up today!